Request to Avail of Tax Incentive of Paying 1 1/2% Tax Based on Gross Contract Price of Overseas Project

May 9, 1986 BIR RULING NO. 059-86 38000-00059-86 Gentlemen : This refers to your letters dated March 1 and 23, 1986 stating that D.M. Consunji, Inc. is an overseas contractor registered with the Philippine Overseas Construction Board (POCB) under P.D. No. 1167 as amended by P.D. No. 1657; that in all of its overseas projects, it availed of the incentive provided for Filipino overseas contractors of paying only 1 1/2% tax on its gross contract price less any portion subcontracted to another registered Filipino contractor pursuant to Section 4(c) of P.D. No. 1167 as amended by P.D. No. 1657; that when the said tax incentive was withdrawn by P.D. No. 1955 which took effect on October 15, 1984; you reported and paid your regular corporate income tax on your two (2) projects in Brunei for the first three (3) quarters of 1985 in accordance with Section 24(a) of the Tax Code; and that starting taxable year 1985, you did not record separately the expenses for your domestic contracts and the expenses for overseas contracts covered by the incentive under Section 4(c) of P.D. No. 1167 as amended. Based on the foregoing representations, you request that you be allowed to avail of the tax incentive of paying 1 1/2% tax based on gross contract price of your overseas project for the whole year of 1985. In reply, please be informed that your request cannot be granted for lack of legal basis. FIRB Resolution No. 49-85 dated July 17, 1985 provides that the tax exemption privileges granted to overseas contractor registered with the Philippines Overseas Construction Board under P.D. No. 1167, as amended by P.D. No. 1657, which were withdrawn by P.D. No. 1955, remain revoked except the privilege, among others, of such overseas contractors to pay the preferential rate of tax of 1 1/2% of gross contract price, in lieu of income tax, which has been restored effective October 15, 1984 and available only up to October 15, 1989. However, in order to avail of such incentive, you are required under P.D. No. 1167 as amended and its implementing regulations, particularly Section 8, Rule VI thereof, to keep separate records of the gross income and expenses for domestic contracts and those for overseas contracts covered by the incentive. Consequently, since for the whole year of 1985, you admittedly, did not make a separate recording of your expenses for domestic contracts and overseas contracts, your income tax return for 1985 will not clearly reflect your 1985 income subject to the preferential tax rate of 1%. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner